The nation’s economy could lose some of its strength next year because of global trade protectionism, with GDP growth forecast to slow to 2.4 percent from an estimated 2.5 percent this year, as trade tensions and a global slowdown hurt demand for consumer products, S&P Global Ratings said yesterday.
“Uncertainty remains high as we head into 2020,” Taiwan Ratings (中華信評), the international agency’s local arm, told a media briefing in Taipei.
The economic slowdown globally and in China, coupled with an uncertain trade outlook, could hamper demand for major consumer products, from smartphones to home appliances and automobiles, Taiwan Ratings analyst David Hsu (許立德) said.
The scenario would weigh on the earnings ability of local companies in the semiconductor, electronic components, chemicals and auto parts industries — the mainstay of Taiwan’s exports — and limit any meaningful improvement in the nation’s economy over the next 12 months, Hsu said.
The growth projection would still make Taiwan the best performer among major trade rivals Hong Kong, Singapore and South Korea, which share similar economic patterns, S&P said, adding that Taiwan held steady against headwinds this year.
That steadiness had much to do with government incentives for companies to bring parts of their value chains back to Taiwan, a process known as “reshoring,” S&P said.
China’s accelerated rollout of 5G mobile communications and improved sales of new iPhones also helped ease the trade dispute’s impact on Taiwan’s technology sector, it added.
The US-China trade conflict would continue to pose the greatest risk to Taiwanese enterprises, and constrain market confidence and trading activities, S&P said.
The impact would be most evident in the technology and shipping sectors, while commodity sectors, including chemical, cement and steel, would feel its indirect pressure, it said.
Taiwanese companies in the chemical, steel and auto supply sectors are most vulnerable to China’s slowdown due to a high sensitivity to macroeconomic changes and sizable exposure to the Chinese market, it said.
That explains why Taiwan Ratings this year downgraded the credit outlook for Formosa Plastics Group’s (台塑集團) four major units, as well as Pegatron Corp (和碩), a major iPhone assembler.
By contrast, Taiwanese cement manufacturers could benefit from relatively stable demand from infrastructure projects and property construction linked to Chinese stimulus programs, S&P said.
Local financial institutions, especially banks, would be the least susceptible to the trade dispute, which thus far has not led to a material deterioration in their asset quality, it said.
“The world will closely monitor what Washington does regarding the proposed Dec. 15 tariff hikes on smartphones and laptops, as the ‘phase one’ deal remains elusive,” Hsu said.
